S&P Downgrades Prudential Credit Rating To A From A+ On Demerger Plan

16th Mar 2018 12:51

LONDON (Alliance News) - S&P Global Ratings downgraded the credit rating for Prudential PLC on Thursday amid the announcement that the FTSE 100-listed insurer and asset manager was planning to demerge its UK operations.

S&P downgraded Prudential to A from A+, with a Stable outlook.

The credit analyst made the move after Prudential announced on Wednesday it was planning to demerge its UK & Europe business, M&G Prudential, from Prudential PLC - which will cover Asia, Africa and the US - "resulting in two separately-listed companies with different investment characteristics and opportunities".

S&P believed that the demerger was likely to successfully take place. This, however, S&P believed "slightly weakens its creditworthiness."

"The downgrade of Prudential's core entities reflects our view that the carve-out of the UK operations makes the group less diversified," S&P Credit Analyst Volker Kudszus said. "Specifically, we see it as reducing the group's global reach and removing it from healthy market positions in the developed and mature UK and European markets. The demerger would, in our view, thus result in the group having a narrower business position than a number of global multiline insurers."

Despite this, S&P attached a Stable outlook to the new, lower credit rating. S&P emphasised Prudential remained well diversified within "growing and profitable" markets and that the demerger doesn't alter its "conservative" capital adequacy management.

"The stable outlook reflects our expectation that Prudential's management will safeguard the group's extremely strong capital adequacy and healthy balance sheet, despite the announced separation plans," S&P explained. "We also expect extremely strong capital for the international group, as well as a very strong competitive position based on global diversification, after the separation is completed."

S&P added it believed a positive rating action on Prudential over the next two years was "remote."

Negative rating actions, however, could occur should capital adequacy levels weaken, if financial discipline does not continue or if capital generation fails to keep pace with ongoing business growth.

Its creditworthiness could also be hurt should its operating performance weaken compared to what S&P would expect from its "very strong competitive position."

Shares in Prudential were 0.8% lower at 1,927.50 pence on Friday,

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